What is a fee based broker?
[social_share]Fee-based insurance brokers charge a fee to the purchaser for their services, rather than being paid by commission through the insurance premiums or paid directly by the insurance company. These brokers tend to be more suitable for a person seeking impartial advice, but the up-front costs can put others off using this option.
A broker is a person who is hired (in some manner) to examine insurance providers on a customer’s behalf and find the most suitable life insurance policy.
A fee-based broker charges for their time in the same way that an accountant or a solicitor would, although it is more likely to be in the form of a fixed fee rather than an hourly rate. This is different from a commission-based broker who is paid a commission by the insurance provider for selling the product.
In some cases a broker can be both commission-based or fee-based, according to the customer’s preference. It should also be possible to ask a fee-based broker to transfer any commissions they receive to the insurance buyers, but this commission will usually be less than the fee.
Some people object to this payment model, saying that a commission-based broker is free while a fee-based broker charges money. But this is not an accurate reflection. The commission-based broker does charge a fee, but it’s hidden through the structure of the transaction. Effectively they charge a fee to the insurance company, who passes that fee on to the policy holder through higher premiums.
There is also the danger of a conflict of interests between the broker and the clients. For example, there may be a policy that is better suited for a particular client, but another policy is recommended because it carries a higher commission. This is actually quite rare, but more common has been for brokers to look only at policies they know carry higher commissions.
Another objection is that the cost of a fee-based broker is up-front and it may be easier to afford a commission that’s paid out through the life of the policy, even if it is cumulatively higher. This may be true for some people, although it can also be the case that the policy itself is considerably cheaper through a fee-based broker, without the addition of a commission-based broker’s commission.
